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US not policing college lenders, GAO says

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Bloomberg News / August 2, 2007

WASHINGTON -- The US Education Department does not monitor financial arrangements between colleges and lenders and has tried only twice in 20 years to sanction violators, according to the Government Accountability Office.

The department hasn't offered formal guidance on improper inducements since 1989, according to the GAO, Congress's research arm. Nor does the department have a process to address noncompliance with its guidelines, the GAO's report said.

Congress has been investigating practices in the $85-billion-a-year student loan industry and has passed legislation to cut subsidies for lenders. Investigations by Congress and New York Attorney General Andrew Cuomo found that some lenders had undisclosed arrangements to provide colleges or their staffs with payments, consulting fees, company shares, and other perks.

"Under existing law, the department's authority to take action regarding some of these practices is limited," Lawrence Warder, the department's chief financial officer, wrote to the GAO.

The Education Department agrees better oversight is needed and is addressing that concern, Warder said in the letter.

Cuomo expanded his probe yesterday to 40 athletic departments, such as those at Georgetown University and Colorado State University, that may have steered students to Student Financial Services Inc., also known as University Financial Services, in exchange for kickbacks.

One of the student-loan providers under investigation, EduCap Inc. of McLean, Va., will reduce its lending operations, the Chronicle of Higher Education reported, citing a company spokesman. EduCap didn't immediately return a call seeking comment.

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